Question

1. There is a furniture manufacturer using labor (L) and capital (K) to produce tables. Its production function is given by q= 10L^.75 K^.40. It pays a wage of $5 per hour and rents capital at a rate of $15. The firm wants to find the cost-minimizing bundle of inputs to produce 10,000 tables. Assume K is on the y-axis in what follows.

1. Write out the firm’s cost function.
2. Calculate the firm’s isocost equation.
3. What is the slope of the isocost equation?
4. Using the graphical method (not the method of Lagrange), solve for the conditional input demands, K* and L*.
5. Using your results from part (d), what is the minimum cost of producing 10,000 tables?

1. (15 points) There is a furniture manufacturer using labor (L) and capital (K) to produce tables. Its production function is given by q -10175K40. It pays a wage of $5 per hour and rents capital at a rate of S15. The firm wants to find the cost minimizing bundle of inputs to produce 10,000 tables. Assume K is on the y-axis in what follows a) Write out the firm's cost function b) Calculate the firm's isocost equation. c) What is the slope of the isocost equation? d) Using the graphical method (not the method of Lagrange), solve for the conditional input demands, K* and L Using your results from part (d), what is the minimum cost of producing 10,000 tables? e)

Answer 1

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